Distribute Out a Roth IRA to Begin Flipping?

[Burt L.]

I have a Roth IRA that has been in place over five years, so the gains and the principal can be withdrawn without tax consequences -other than reporting. The account isn't large enough to finance a flip itself, but the funds can be used to obtain a soft-money loan, and I will have 20% in both the purchase price and 20% of the rehab costs.

My understanding is that if its in an IRA, I must do a non-recourse loan of 40-50% down and can't be involved in the rehab at all. The financed part of the deal is taxable anyway. Other than being a wholesaler and using a roth for earnest money, it doesn't look like I can use the Roth as it isn't of "critcal mass" to do an entire deal.

As this is my source of funds to do an initial flip deal and the distribution is not a taxable event, I don't see a way around the distribution. I can also take the money out for up to 60 days and return what wasn't used once every rolling twelve months. Of course, few flips are turned in 60 days, but the funds could be helpful in qualifying for a soft money loan if nothing else.

I read a few times that smaller IRA accounts aren't so helpful for real estate investing in general. What might I be overlooking, before pulling the 60 day trigger? Seems a little like starting the 45 day identification period on a 1031 without a target property, though. However. lenders do want to see your money seasoned on a statement or two and the funds just don't seem to be of use in an IRA.